"2015 was a year of dodging relentlessly falling knives; upon
deeper inspection, one superficially tempting investment after
another turned out to be worse than they initially appeared. We
avoided the great majority of these and were nicked by only a
handful," Klarman wrote.

"In investing, however, there is no umpire calling balls and
strikes, and in retrospect we could have been even more patient
at the plate. What had, for many investors, been a growing pool
of red ink during the year turned into a bloodbath by year-end.
To repurpose Warren Buffett’s famous quote about managements and
businesses, when a talented investment team confronts an
exceptionally challenging market, sometimes the market wins (at
least in the short run)."

Baupost, one of the world's most successful and secretive hedge
funds, saw its portfolio in public equities mainly dragged down
from the following investments:

Cheniere Energy

Micron Technology

Keryx Biopharmaceuticals

Antero Resources

In the other letter to investors, Baupost's head of public
investments, Jim Mooney, explained what went wrong:

I believe it is best to think about our 2015 results in two
parts: what we brought on ourselves and what resulted from the
environment in which we operated. In the first category, we made
some mistakes. I will describe the two largest. Our loss on
Micron resulted from the fact that we remained overly optimistic
about our long-term thesis after it should have become apparent
that the company’s widening cost disadvantage compared to its
largest competitor, Samsung Electronics, would result in lower
than expected profit margins. It also should have been clearer to
us that the company was more vulnerable to the decline in PC DRAM
pricing than we had believed. By the time we decided to sell
nearly all of our remaining position, the stock was lower – a
frustrating coda to an otherwise tremendously successful
investment that achieved total lifetime profitability of over
$900M.

In the case of Keryx, we purchased our initial position at
an average price of $14.50 per share based on what turned out to
be an overestimation of initial prescriptions for Auryxia, the
company’s approved drug to control phosphorous levels in dialysis
patients. While we remain confident in the long-term potential of
Auryxia, and, thereby, our investment in Keryx, the slower sales
ramp through 2015 did have a modestly negative impact on our
estimate of intrinsic value. The market, however, took a much
harsher view and punished the stock, driving it down to almost
70% in less than three months from about $10 to almost $3 a
share. Although this certainly was not good news for our
mark-to-market P&L, we believe it was a significant
overreaction, and we were able to take advantage of the
opportunity by investing additional capital on a private basis at
what we believe is an incredibly attractive valuation. This, of
course, is a great illustration of the fact that even in
circumstances when we reduce our own expectations, price declines
can far exceed what we judge to be warranted.

With respect to the broader investing environment, the
public markets of 2015 were difficult to navigate. Opportunities
for significant gains were largely confined to a small number of
broadly-loved (and loftily-valued) companies. Most portfolios
without those names moved sideways, at best. Those with exposure
to the energy sector performed far worse. Performance in energy
names was, obviously, driven by a dramatic decline in commodity
prices. Companies with direct commodity exposure, like Antero
Resources, fell to levels that ascribed little or no worth to
valuable non-producing acreage. Even Cheniere Energy, with
limited exposure to oil and gas prices, was significantly
penalized by this unforgiving market.

During 2015, Baupost spent $2.2 billion in its public-equity
portfolio, adding to 23 of its already existing stock positions.
The fund also initiated 22 new positions during the year.